The Volatility Characteristic And Risk Measure Research Of China Gold Market

The worringly high level of CPI and PPI implies that China confronts with serious inflation problem recently. Domestic stock markets also went dowm a lot due to many unfavorable factors, such as high inflation, natural disaster, listing of floating shares with sales limit, gobal financial market volatility caused by credit crisis in United States and so on. Domestic resistants and enterprises are seeking safe haven investments as assets hedge. The global economic uncertainties, worldwide high inflation and depreciation of the dollar push the price of gold to a high level. As one of the most important gold consumer and producer, China has built up itself gold market and offered many gold products. Domestic resistants and enterprises can invest in gold market for the purpose of assets hedge. Investment in gold market may encounters volatility risk, so it is necessary to conduct the volatility characteristic and risk measure research of China gold market currently. This paper studies domestic gold market by using qualitative and quantitative methods. The article is organized as follows.In first chapter, the paper introduces the research background and purpose firstly , and then reviews the relavant arguments in this area. At last, the innovation and construction of the article is introduced.In second chapter, the paper conducts the introduction of gold and gold market descriptively. An analysis of factors that can affect the gold price is taken in this part. The third chapter is about the volatility characteristic research of China gold market which includes two parts, which are listed as follows:1. The paper conducts the research persistence characteristic of fluctuation in gold market by using rescaled range(R/S) method. The empirical research drives the following conclusions: (1) There exists long-memory effect in China gold market. The historical information always affects the gold spot price. (2) The fluctuation characteristics of China gold market presents significant persistency effects; (3) The long-memory effect will not exist after two months.2. This paper also studies volatility clustering, asymmetric behaviour of volatility and the relationship between expected return and volatility, that is risk, in gold market using GARCH-class models. The major conclusions of the part are listed below: (1) Asset returns in gold market exhibits non-Gaussian distribution. There exhibits a well-known stylized fact in gold market—volatility clustering. (2) GARCH models are good descriptions of this time-varying volatility in gold returns. EGARCH(1,1) model can better discribe the fact than GARCH(1,1) model. (3)The models imply that volatility exhibits a high degree of persistence. The impact of new information placing on volatility in gold market will last a long time. So it indicates that it is necessary to develop gold future to control or manage the gold spot market risk caused by long-term impact of new information, such as US weighted exchange rate, monetary policy announcement of America, inflation news and oil prices. (4) The parameter proxying for asymmetry in EGARCH model that recognizes the asymmetric behaviour of volatility are highly significant positive in the case. The results demonstrate there is an asymmetry in the impact of news on volatility. Positive news surprises increase predictable volatility more than negative news surprises.(5) The result of GARCH-M shows that there is a positive correlation between expected return and future volatility. Expected return contains some risk premium. However, the correlation is not significant.The fourth chapter conducts risk measure research of China gold market.1. How to measure the gold market risk is very important for the participants that are involved in trading gold. Value at Risk (VaR) is an effective technique used to estimate market risk. The paper constructs a VaR-GARCH-GED model to measure gold market risk. The empirical results show that the VaR-EGARCH-GED model can provide the participants in gold market a suitable method to conduct quantitative risk management. The results also suggest that investors shold choose a high confidence level of relative distribution when estimating VaR in the current circumstance that credit crisis is ongoing and financial market volatility is increasing in order to control market risk.2. Many investors are engaging in the transaction of Au(T+D), one of the gold products trading in Shanghai Gold Exchange. In order to control market risk, SGE should set reasonable margin level for Au(T+D) contract, because the transaction of the gold product is based on margin. Investors can build up long position or short position of the Au(T+D). When gold price goes up, long position of Au(T+D) contract encounters profit and short position encounters loss. VaR-GARCH-GED models are built up to measure the market risk of long position and short position respectively according to historical data. The paper also provides SGE a method to determine the reasonable margin level of Au(T+D) contract based on taking risk of the two positions into account.The fifth charpter deals with a major question. Is it a very period to develop domestic gold market when stock market continue going down and inflation can not be kept at a low level? The section presents a standard target input model which follows the model developed by Oriana and Imran to research the learning effect placing on behavior of domestic, then to provide a theory support for Chinese government to futher develop gold market. The result proves that it is a good chance to develop gold market currently. So the paper at last drives the following conclusion: Our government should make use of the inflation period and offer market more gold products to improve anti-inflation ability of residents andenterprises and to realize the task of private gold holding.The conclusions are presented in chapter six.